Colorado, like many states, allows mechanics liens to be placed on property where a prime contractor, subcontractor, supplier, and laborer performed work. In Colorado, as in all states, mechanics liens are filed on construction projects. But the mechanics lien laws are a double edged sword, and the lienor must be sure that he is properly liening the construction project. A recent decision by the Colorado Court of Appeals in Byerly v. Bank of Colorado puts lienors on notice that improperly filed liens will be declared invalid.
The case is unique because it relates to a contract between a developer and a contractor where the fee was not just monetary: the developer was to give the contractor 5 acres of land as compensation in addition to certain monthly monetary compensation. However, the contract states that the contractor would only receive the land as compensation if the developer was released from the construction loan the bank had issued. This arrangement appeared to make the payment of the land contingent on certain circumstances: the release of the construction loan by the bank.
Instead, the developer was unable to sell the lots it was developing, and then failed to pay the contractor’s fees. The contractor filed a Colorado mechanics liens in the amount of the unpaid monthly fees and for the value of the land it was supposed to receive under the contract. When the bank foreclosed, it attempted to get rid of the contractor mechanics lien by arguing that the amount of the lien was excessive and that a contractor cannot file a lien for an amount over and above the contract price.
The Colorado Court of Appeals held that the maximum amount for which a prime contractor can file a lien is the contract price. The Court also found that the “conditions precedent” had not been established in order to file a lien for the value of the land, so the filing of a mechanics lien was not valid to the extent that these amounts were included therein.
Note that the court indicated that its holding does not necessarily apply to all circumstances. If the contract has not been recorded as required by statute, then subcontractors, suppliers, and laborers may file a mechanic’s lien for the full value of the services and labor provided, regardless of the contract price.